TSMC’s Q4 soars, but chipmaker reduces spending

Taiwan Semiconductor Manufacturing Co. (TSMC) posted record sales and net profit in the fourth quarter as demand for chips in communications, computers, and consumer electronics products soared, the company said Thursday.

The world’s largest contract chipmaker said sales grew more than 25 percent year-on-year to NT$93.9 billion (US$2.9 billion) in the three months ended Dec. 31. Net profit increased nearly 24 percent to NT$34.5 billion. TSMC’s previous sales record was NT$88.96 billion in the third quarter of 2007, while its prior record net profit came in the second quarter of 2006, NT$34.0 billion.

TSMC’s fourth quarter sales beat its own guidance in part due to increased demand for more advanced chips made using 90-nanometer, 65-nanometer, and even finer manufacturing technologies. A total of 10 percent of TSMC’s sales were for 65-nanometer and below technologies in the fourth quarter, up from 7 percent in the third quarter. The nanometer term describes the size of the smallest feature manufactured on a single chip. There are about three to six atoms in a nanometer, and a billion nanometers in a meter. Reducing the size of the features on a chip enables companies to create smaller, more energy-efficient, and more powerful chips.

“Demand for advanced technology capacity remained very strong throughout the year,” said Rick Tsai, president and CEO of TSMC, during the company’s investors’ conference. “This will continue to grow,” he said.

The company forecast strong guidance for the first quarter of this year, saying mobile phone and PC shipment growth should help bolster the chip industry. TSMC is a bellwether for the global IT industry due to the number and variety of chips it produces for a range of electronic gadgets.

TSMC predicts its revenue will drop to between NT$87 billion and NT$89 billion in the first quarter, a slimmer decline than analysts had expected.

TSMC’s biggest rival, Taiwan’s United Microelectronics predicted a far worse first quarter, with revenue forecast to decline by as much as 15 percent and it may post a loss for the quarter. UMC posted sales of NT$27.6 billion in the fourth quarter, up nearly 6 percent year-over-year, but its net profit fell 76.1 percent to NT$1.36 billion.

TSMC joined a number of other chipmakers in slashing its capital spending for this year. The company predicted its 2008 spending on new factories and production line equipment will reach only US$1.8 billion, down from US$2.6 billion last year. UMC forecast its 2008 capital spending at US$500 million to US$700 million, down from US$900 million last year.

“In the coming five years, we believe the capital intensity will be lower than the last five years,” said Lora Ho, TSMC’s chief financial officer, indicating the company expects to spend less in coming years than it has in the past few years.

Several Taiwanese chipmakers have already announced significantly lower capital spending forecasts for this year, due in part to concerns about global economic growth and partly to a glut of DRAM memory chips.